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Are LLCs or S-corporations better for entrepreneurs?

On Behalf of | Nov 17, 2021 | Business Law |

As an entrepreneur looking to establish a business in New York, you may weigh your options and try to pick a business structure type that offers the biggest benefits in terms of tax implications, ease of operations and so on. Along the way, you may consider establishing your business as either a limited liability company or an S-corporation, among other options. Each option has its own benefits and ramifications.

According to Business News Daily, an S-corporation differs from an LLC in several key ways.

Recognizing how LLCs and S-corporations differ

S-corporations and LLCs differ in that an LLC is a formal business entity while “S-corporation” refers to elected tax status. Also, when you establish an LLC, you do not face limits as far as how many members it might have. However, when you establish an S-corporation, you may have no more than 100 shareholders. There are also important tax differences between the two structure types. When you own an LLC, you have to pay self-employment taxes on the income you bring in. As the owner of an S-corporation, you may face less of a tax obligation in this area.

Deciding between LLCs and S-corporations

There is no one-size-fits-all answer to whether an LLC or S-corporation is better for you as an entrepreneur. However, some entrepreneurs find it beneficial to establish their entities as LLCs at first, because they offer benefits in terms of tax write-offs and personal liabilities. However, as your business’s profits grow, switching to an S-corporation may help you save money on taxes.

This information provides an overview of some of the differences and considerations involved in establishing an LLC or an S-corporation. However, this is not an exhaustive summary of what you should know before establishing either type.